Thursday, February 14, 2013

Coalition voters are suddenly confident about the economy, moving clearly into positive territory for the first time in two years.

The latest Westpac Melbourne Institute consumer confidence survey shows optimists among Coalition voters outweigh the number of pessimists by five percentage points, a reverse of the recent pattern in which Coalition voters have been strongly negative.

The lift among Coalition voters has been enough to hoist the overall consumer confidence index from around 100 points to 108 on a scale where 100 means the number of pessimists balance the number of optimists.

Westpac senior economist Matthew Hassan says the change is primarily the result of the carbon tax.

Ahead of its introduction in mid last year it pushed the confidence of Coalition voters (but not Labor voters) into a downward spiral.

“There was the point when there was a whole series of overlapping concerns around tax changes - the carbon tax, the mining tax, the global situation was getting worse and in Queensland things looked dire. The incoming government spoke about Queensland being the Spain of Australia"...
“At the same time low and middle income households likely to voter Labor were being showered with carbon tax compensation, exacerbating the wedge.”

"In all the time we've been doing this we've never seen as big a deviation. In terms of confidence, we had a divided nation. It was off the charts."

Mr Hassan said the improved confidence figures represented a return to normality. The carbon tax had not been as bad as expected, the share market had climbed, and interest rates had fallen.

Asked in the first week of February whether now was a good time to buy a major household item an extraordinary 59 per cent of Australians surveyed said yes. Only 16 per cent said no.

One quarter of those surveyed expected their own personal financial situation to improve in the year ahead. Only one in five expected it to get worse.

When asked about the economy over the year ahead optimists outweighed pessimists by 9 per cent. But when asked about the economy over the next five years, optimists and pessimists were roughly balanced.

HSBC Australia chief economist Paul Bloxham hailed the surge in confidence as a sign interest rate cuts were having their desired effect.

"This result is consistent with what we've had in mind, which is that the soft patch in the Australian economy may be behind us," he said.

Mr Hassan said the higher iron ore price meant news bulletins were no longer full of stories about the end of the mining boom. Housing prices had stabilised and started to climb.

“All of these things have come together. It's hard to pinpoint what's driving the new better mood and how it will be sustained, but certainly it's far better than anything we've seen over the past eighteen months,” he said.

It was possible Coalition voters were responding to the election announcement and were feeling more confident because they expected a change of government, but Mr Hassan said elections were usually accompanied by uncertainty, making the surge in confidence unusual.